It is XEROX scandal time !

June 28, 2002 7:17 AM

It is XEROX scandal time ! More or less 6B$ "accounting trouble".. they say "just 2B$" like it's monopoly money
posted by elpapacito (29 comments total)

maybe it was just a little bet of debt, but it got "copied" over and over again.
posted by ColdChef at 7:20 AM on June 28, 2002

Anybody know if the common denominator of Enron, Worlcom and Xerox is Arthrtur "Creative Accounting" Andersen ?
posted by elpapacito at 7:21 AM on June 28, 2002

According this this article, it looks like the auditor was KPMG.
posted by monju_bosatsu at 7:27 AM on June 28, 2002

I have a feeling the recent troubles of these large corporations will make the .com bomb look tiny.
posted by madmanz123 at 7:31 AM on June 28, 2002

Yeah. And, elpapacito, if what I hear is true, the only reason Anderson is the only one in trouble so far is that they are the only one who's been caught. I've been told these practices are widespread and rampant among major corps, and that all the major accounting firms are hip deep in this kind of thing.
posted by Irontom at 7:40 AM on June 28, 2002

Hurray. Welcome to our version of the 30s. I'm not claiming we'll have unemployment at 50%, but the (continued) loss of faith in the market will be a staggering setback for years to come.
posted by jragon at 7:44 AM on June 28, 2002

$6B is an overstatement. They overstated revenue 1997-1999 by $6.4B, but were able to offset that in 2000-2001 by $5.1B, though the article doesn't specifically say it was an understatement of income during that period. In any case, total equity was reduced by $1.3B.

Still nothing to sneeze at, but $6B isn't fair.
posted by goto11 at 7:45 AM on June 28, 2002

Iron: yeah that's a rumor so let's keep our trust in serious accounting firms (rolls on the floor laughing hysterically).

It's also blame time : who's to blame ? The dudes who liked Xerox stock to be overinflated ? AGAIN ? Maybe it's time to rethink Wall Street or stock market all over again,
this time with death penalty for stock overinflation maybe ? Seriously I oppose death penalty, but "creative" managers should serve some good time breaking rocks with hammers in desert.
posted by elpapacito at 7:48 AM on June 28, 2002

Damn. I guess it's time for me to start storing for my retirement in a hollowed-out mattress.

In all seriousness, though, things aren't looking exactly great right about now. I imagine that if a couple big companies start declaring that the books have been cooked, others might follow, and if it happens too many times it could be pretty bad news for an already woozy economy. The somewhat ironic thing is that a lot of people were almost yucking it up when dot coms went dot bomb, but now that traditionally solid companies (energy companies like Enron and utilities like Worldcom) are announcing business practices that are even more shady, the joke isn't so funny...
posted by almostcool at 7:51 AM on June 28, 2002

I wonder when foldy is gonna show up? This one is custom made for him.
posted by Irontom at 7:58 AM on June 28, 2002

How could this happen to Xerox? Don't they make things? Things that are sold to real people? You know, like a... product?

Unlike Enron and even Worldcom, Xerox has long been a successful manufacturer of goods. I thought all this rigamarole with money-laundering and account shifting was only something stock brokers and "fake" companies (energy consortiums, telecom firms) did.

I guess I was wrong. Dead wrong!
posted by Hammerikaner at 7:59 AM on June 28, 2002

Xerox can fix this, they have some great copiers that can make great looking counterfeit $100 bills.
posted by tomplus2 at 8:06 AM on June 28, 2002

First Enron, then WorldCom. Makes Xerox look like a copycat. But why would they want to duplicate the scandals of those companies?
posted by pardonyou? at 8:11 AM on June 28, 2002

My 1st day in Accounting 101, per the instructor, "even a simple mistake in the books, is grounds for jail time."
Then he explained the title of a CPA.
Are you aware you have to keep up on your certificate. Every so many years they have to take a CPE course with a take home test. It's not like you stay a CPA certified for life, there is work staying one. Like a doctor your leg is always in the same spot, unless your a freak. But the tax laws change year to year, and even go retro.....
Still no excuse burning the books when cooking.
posted by thomcatspike at 8:54 AM on June 28, 2002

This Reuters report is more informative: The improper accounting by Xerox involves the timing and allocation of lease revenues, some of which have been brought forward. A restatement could mean that sales originally booked in one year should now be booked in another.

That is, the $2 billion in question is actually genuine (expected) revenue for Xerox; the accounting error was that some of it hasn't come in yet. Xerox didn't lie about the actual amount, though, just when it would get it.
posted by mattpfeff at 9:33 AM on June 28, 2002

Matt: this is as important as a false revenue situation. You can't tell me you made $X this year when in reality that money must be book for another year, because that's not telling the truth about your performance , which is an important economic index.

Now if that's true the reason behind the error is probably they wanted to show a better performance then real so that investors are encouraged to buy stock.
posted by elpapacito at 9:53 AM on June 28, 2002

Xerox has been on the ropes for several years. This may prove the last nail in the coffin.

Or it could all be some evil scheme to reduce the stock price to facilitate a takeover/buyout.
posted by rushmc at 10:06 AM on June 28, 2002

The way it works here is that Xerox accelerated the timing under which it booked leases. Essentially they should have spread out the revenue over the anticipated life of the lease, but they instead put it - or a too-large portion of it -down as current revenue. One thing to note - as in Worldcom this did nothing to change the cash-in/cash-out, however it inflated near-term revenue and reported income.

The Worldcom one is frankly the scandal that's worrying Wallstreet much more: there are five million companies out there with massive capital expenditures (think telecom, cable, satellite, etc.) which don't, typically, really tell analysts what they put in expenses (so it would affect earnings) and what they capitalize (affects cash but not earnings). People are worried that there may be a number of other companies that are at least aggressive in their accounting.

Overall, this seems to be (1) an overhang from a rampaging bull market where equity values were inflated creating massive wealth but demanding performance in excess of anything possible in order to justify the crazy places that people bid up these stocks (remember, Worldcom has only been - so far as we know - messing with their number for the past 5 quarters of declining stock price; the crazy valuations put on it by the market happenned before they started messing around) (2) a ton of companies - Xerox among them - switched from Andersen, and the new auditors are all looking much harder than normal at these companies. I'm not sure which of the two is more important - whether there was more shady stuff than normal going on or whether it's just people looking harder, but I wouldn't start assuming that every comapny is shady, and it may be that no more than normal are. There's always bound to be some bad apples in any basket whether it's corporations or individuals.
posted by fluffy1984 at 10:27 AM on June 28, 2002

I wonder when foldy is gonna show up?

well, he'd grace us with the usual variation on his theme, say that Xerox is worse than Al Qaeda and people who work on Wall Street are worse than Mohammed Atta -- especially the non-Vegan ones.
where's the excitement?
posted by matteo at 10:32 AM on June 28, 2002

Matt: this is as important as a false revenue situation.

Well, I don't know what "important" means in this context (I mean, it's not like a company's earnings in a given year say all that much about its overall health), but I more or less agree -- I just wanted to insert that remark for clarification, given some of the other comments in this thread.

This opinion piece (NYTimes link), by the way, not only examines just how meaningless annual earnings targets are in evaluating a company, it also includes an ironic example, doubtless devised before Xerox's announcement today: Companies must also make assumptions as to how and when to recognize revenue. Xerox, for example, sells both copying equipment and long-term maintenance contracts on the equipment. This package forces the company to make assumptions — essentially, educated guesses — as to the comparative value of equipment sales and maintenance contracts. Managing these assumptions ultimately translates into managing earnings.

Heh.
posted by mattpfeff at 11:27 AM on June 28, 2002

I think it's about I started putting my money into gold.
posted by DakotaPaul at 11:35 AM on June 28, 2002

Hrm, dosn't seem that bad, over all. Not like the enron thing, where the money just dissapeared.


With both Xerox and Worldcom the money was still there. Worldcom seems pretty fux0red, but I doubt this will bring down Xerox.


But then again, who knows. At least if the ecconomy is in the shitter bush won't get reelected.
posted by delmoi at 3:03 PM on June 28, 2002

I think it's about I started putting my money into gold.

I wouldn't. Are you aware of how much gold technology is about to enable us to reclaim that was hitherto unprocessible?
posted by rushmc at 3:19 PM on June 28, 2002

Does it matter? Gold's always been a safe harbor when everything else goes down.
posted by PWA_BadBoy at 5:01 PM on June 28, 2002

No, gold's always been a good way to turn a large fortune into a small fortune.
posted by NortonDC at 2:03 AM on June 29, 2002

I wonder when foldy is gonna show up?

Odd, I was thinking the same thing about MidasMulligan. Just 'cause I was looking forward to watching him squirm.
posted by stavrosthewonderchicken at 8:09 AM on June 29, 2002

Does it matter? Gold's always been a safe harbor when everything else goes down.

Only because of its relative scarcity. But if it's suddenly as common as aluminum? Supply vs. demand.
posted by rushmc at 9:00 AM on June 29, 2002

At least if the ecconomy is in the shitter bush won't get reelected.

Have you actually checked the economic indicators recently?

Also, assuming that presidential elections are nothing more than referendums on the current economy is unbelievably simplistic.
posted by ljromanoff at 9:02 AM on June 29, 2002

unbelievably simplistic

Just like nearly all public statements made by politicians, then?
posted by walrus at 6:54 AM on July 1, 2002